Purchase tax liability as business deduction upheld where statutory obligation was disputed but reasonably expected to be payable.

Purchase tax liability on raw cashewnuts was treated as an allowable business deduction because it arose from purchases made in the course of trading and represented an existing statutory obligation. A liability does not cease to be deductible merely because it is disputed, provided there is a bona fide and reasonable apprehension that it will become payable. The Kerala HC also noted that this approach is consistent with the statutory scheme reflected in section 43B of the Income-tax Act, 1961. On that basis, the Tribunal's allowance of the claim was sustained in favour of the assessee.

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Issues: Whether purchase tax liability on raw cashewnuts was deductible in computing the assessee's business income, and whether the Tribunal was justified in allowing the claim despite the liability being disputed and despite the assessee's stand before the sales tax authorities.

Analysis: The liability arose from purchases made in the course of the assessee's business and was treated as an existing statutory obligation. The reference was governed by the principle that a liability does not cease to be allowable merely because it is under dispute, and that deduction is permissible where there is a bona fide and reasonable apprehension that the amount will become payable. The decision also accords with the statutory approach reflected in section 43B of the Income-tax Act, 1961.

Conclusion: The purchase tax liability was allowable as a deduction, and the Tribunal's view was upheld in favour of the assessee and against the Revenue.

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